Mark Latham, Ph.D.
The Corporate Monitoring Project
268 Bush Street #3934
San Francisco, CA 94104, USA
Phone: (415) 786-5583
Fax: (415) 680-1521
April 12, 2002
Office of Chief Counsel
Division of Corporation Finance
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Shareowner Proposal of Mark Latham to Fleetwood
Ladies and Gentlemen:
I am writing in response to the March 22, 2002 letter (the "Fleetwood Letter") submitted to the Commission by Ms. Jean Billyou on behalf of Fleetwood Enterprises, Inc. ("Fleetwood" or the "Company"), which expresses the Company’s intention to omit from its proxy statement for the 2002 annual meeting a shareowner proposal (the "Proposal" or "my Proposal") submitted by me. The Proposal (attached) would request the Company’s Board of Directors to have the Company’s auditor selected annually by shareowner vote.
The Fleetwood Letter cites Rules 14a-8(i)(7) (‘ordinary business’), 14a-8(i)(1) (‘improper under state law’), and 14a-8(i)(3) (‘false and misleading’) as bases for its request for relief from enforcement action. Reasons are given below why I believe the Proposal may not be properly omitted under Rule 14a-8.
Rule 14a-8(i)(7) -- ‘ordinary business’
While the Proposal is the same as the one I submitted to SONICblue Inc. last year, I respectfully request that the Commission staff reconsider the ‘ordinary business’ issue.
The ordinary business of Fleetwood is making mobile homes. Auditor selection is part of Fleetwood’s corporate governance structure, along with such matters as director selection, executive stock option plan design, and whether or not to have a poison pill. Because these corporate governance issues involve potential conflicts between the interests of senior management (including the Board of Directors) and shareowners, it is appropriate for shareowners to have a voice regarding them.
From SEC Release 34-40018 (May 21, 1998):
"Finally, we believe that it would be useful to summarize the principal considerations in the Division’s application, under the Commission’s oversight, of the "ordinary business" exclusion. The general underlying policy of this exclusion is consistent with the policy of most state corporate laws: to confine the resolution of ordinary business problems to management and the board of directors, since it is impracticable for shareholders to decide how to solve such problems at an annual shareholders meeting."
It is more practicable for shareowners to vote on auditor selection than to vote on director selection, which they are already doing. As the Proposal’s supporting statement points out:
"Investors could decide how important auditor independence is to them, and how it should be assessed.
The average investor may seem ill-equipped to make such assessments on her own. But she would not make them on her own. She would benefit from consensus-building discussion by the entire investment community, including proxy advisory firms. It is much easier to assess reputations of auditors than of board members, because there are only a handful of auditing firms, versus hundreds of board candidates for a diversified portfolio of stocks over the years."
The Commission staff recently disagreed with ‘ordinary business’ exclusion arguments regarding proposals at Walt Disney (December 18, 2001) and others, to prohibit an auditing firm from providing non-audit services. My Proposal addresses the same fundamental issue: auditor independence from undue influence by management.
Shareowners have recently become much more aware of and sensitive to auditor independence and auditor reputations. Stricter regulation of auditors can not solve the whole problem. A market for auditor reputation (which my Proposal would permit) could contribute to raising quality standards.
NYSE Rule 303.01 (mentioned in the Fleetwood Letter) was designed to bolster auditor independence in a world where the Board of Directors selects the auditor. It would be contrary to the goal of this rule to use it as an obstacle to other measures for improving auditor independence, such as my Proposal. If necessary, the Board can request that Rule 303.01 be interpreted to accommodate the case of auditor selection by shareowner vote.
Rule 14a-8(i)(1) -- ‘improper under state law’
Because it is precatory, the Proposal mandates no board action, and removes no authority from Fleetwood’s Board of Directors. The subject of the Proposal is a request for action by the Board. The Proposal leaves open to Fleetwood’s Board several courses of action, none of which would contravene Delaware state law:
1. Do nothing.
2. To the extent permissible under Delaware state law and Fleetwood’s bylaws and charter, implement the Board’s interpretation of the shareowners’ request.
3. Amend Fleetwood’s bylaws and charter, if necessary with the approval of shareowners, to permit further implementation of the Proposal.
For a proposal to Washington Mutual (February 22, 2000) that would let shareowners choose independent agents for the company to hire, SEC staff deemed that it would not be excludable under rule 14a-8(i)(1) if it is worded as a request. The current Proposal is worded as a request.
Rule 14a-8(i)(3) (‘false and misleading’)
The Fleetwood Letter claims that the Proposal is vague and indefinite, comparing it with a proposal to Connecticut Natural Gas Corporation (November 29, 1993) (the "CNGC Proposal"). Although the subject matter is similar, in terms of vagueness these two proposals are as different as night and day. Here is the entire text of the CNGC Proposal:
"I am formally requesting the following proposal be included on the proxy statement:
FROM: Proposal to approve the appointment of Arthur Andersen & Co. as auditors for the fiscal year. . .
TO: Proposal to approve the appointment of one of the following public accounting firms (choice of three) as auditors for the fiscal year.
††††† Option One or
††††† Option Two or
††††† Option Three"
As Connecticut Natural Gas Corporation’s counsel pointed out: "The Proposal does not set forth any proposed resolution for adoption by shareholders. It does not contain any supporting statement, nor does it request that any supporting statement be included in the Company's proxy materials. It simply requests that the quoted text be included in the Company's proxy statement distributed in connection with the 1994 Annual Meeting."
By contrast, my Proposal sets forth a proposed resolution for adoption by shareholders, and contains a supporting statement.
Understandably, the Commission did not object to exclusion of the CNGC Proposal, responding: "There appears to be some basis for your view that the proposal may be omitted from the proxy materials in reliance on rule 14a-8(c)(3) because the submission is vague and indefinite." However, the Fleetwood Letter’s claim that "the Staff granted the registrant’s request … because the proposal was ambiguous as to the criteria for selection of the auditors, the voting process by which the auditors should be chosen, and the effect the proposal would have on the board as a result of an affirmative vote" has no basis in the no-action letter for the words I have underlined.
Regarding the Fleetwood Letter’s specific objections to my Proposal: Because it is precatory, my Proposal allows the Company’s Board of Directors discretion in implementing it. Thus the Board can determine which accounting firms are qualified, but are requested not to limit shareowner choice beyond that.
The Fleetwood Letter is right to point out that the balloting rules are important and must be determined. The Board is capable of specifying them appropriately. For example, a well known and effective way of determining a majority winner when there are multiple candidates is to let each voter rank the candidates, indicating first, second, third choice and so on.
Rule 14a-8(i)(3) (‘false and misleading’ re website reference)
The Fleetwood letter complains that the website referenced in the Proposal’s supporting statement (www.corpmon.com) includes information irrelevant to the Proposal. However, the supporting statement also references the January 15, 2002 issue of the Wall Street Journal, which also includes information irrelevant to the Proposal. It is normal for a website and for a newspaper to cover a range of topics. This is not misleading, because readers know how to identify the relevant parts. At www.corpmon.com, the relevant parts are clearly identified on the home page by links labelled "Fleetwood Enterprises" and "Auditor Independence". The ability to have a computer search for specific words and phrases makes finding desired information even easier in this electronic medium.
Any website can change its contents over time; that is the nature of the medium. But the Commission staff (e.g. in Legal Bulletin No. 14, July 13, 2001) has not deemed this to be sufficient reason for excluding website references from shareowner proposals. One way to alleviate some of the concerns expressed in the Fleetwood Letter is to create a link from the referenced website to Fleetwood’s website, thus enabling Fleetwood’s Board to present its side of the debate to readers browsing through. In fact, I have included such a link to Fleetwood ’s website, ever since submitting the Proposal in January.
Based on the foregoing, I respectfully request that the Commission staff not concur with the views expressed in the Fleetwood Letter regarding exclusion of the Proposal from the Fleetwood proxy statement. Please contact me with any questions about this submission.
Very truly yours,
cc: Ms. Jean Billyou
Gibson, Dunn & Crutcher
4 Park Plaza
Irvine, CA 92614-8557